Regents move forward with UCLA hotel despite financial concerns

Despite their skepticism a few months ago, members of the University of California Board of Regents have approved the budget and financing for UCLA's plan to build a 250-room, $162 million hotel and conference center – setting aside some concerns about the project's financial viability and resistance from local hotel owners in the Westwood neighborhood.

The regents' Committee on Grounds and Buildings agreed July 17 that the project [PDF] is an important move for UCLA to boost its profile in the academic community. The project will be financed with a $40 million gift from Meyer and Renee Luskin, $112 million in external financing and the remainder from housing reserves and campus funds. The full board approved the project the following day.

“Our goals are to foster the exchange of ideas, contribute to the preeminence of UCLA as one of the world’s great research universities and allow UCLA to compete against other top-tier institutions for academic conferences,” UCLA Chancellor Gene Block told the committee.

As California Watch previously reported, the project has been controversial in part because, unlike private hotels, the Luskin Conference and Guest Center wouldn't be open to the general public for hotel stays. As a nonprofit entity with tax-exempt financing, it would be limited to guests with a university affiliation or risk being exposed to a special unrelated business income tax. UCLA's business plan expects the project to be exempt from the tax.

Despite that limitation, the university’s business plan projects the Luskin center will have an occupancy rate of 60 percent in the first year, growing to 70 percent in the third year and stabilizing at that level.

Block noted in his presentation that the hotel and conference center would serve not only academic conference attendees, but also donors, parents and alumni coming to UCLA for activities “in furtherance of UCLA’s educational mission.”

But critics have noted that the Internal Revenue Service has treated alumni, for example, as members of the general public, suggesting that the university could be exposed to the unrelated business income tax.

According to "The Tax Law of Colleges and Universities" by Bertrand M. Harding, the IRS made this ruling clear when it considered income from alumni use of a university’s recreational golf course as unrelated to an educational purpose.

An attorney from McKenna Long & Aldridge, a law firm representing the neighborhood group Save Westwood Village, noted the same IRS ruling at the regents meeting and in a letter to UCLA.

Daniel J.B. Mitchell, professor emeritus at the UCLA Anderson School of Management and School of Public Affairs, said the plan still hinges on the university’s ability to serve guests who may not be allowed under IRS rules.

"If you don't fill it up, then you start losing money, and somehow or other, some other part of the campus is going to pay for it,“ said Mitchell, who has written about conference center developments on the UCLA Faculty Association blog. "For the local hotel owners, it's almost costless for them to monitor this, and then if they see any issues that raise tax issues, they can drop a dime to the IRS."

UC Davis also has a hotel on campus, but the Hyatt Place is run by a third party and is open to the general public for hotel stays.

When the Luskin center first came before the same regents committee in March [PDF], the regents tabled the discussion until a later date because they had many unanswered questions. Several regents asked in March whether the projections were too optimistic, putting the university at too great a financial risk. They questioned whether UCLA had considered buying a hotel or building the center in a different location.

Since then, Regent Hadi Makarechian said, members of the committee participated in three or four conference calls and a number of meetings and corresponded back and forth with UCLA officials to get answers to their questions.

Importantly, UCLA secured a July 3 letter to the regents from the Luskins stating their desire to have the project on campus.

"Locating such a facility off the UCLA campus, whether at Lot 36 or through the purchase of a hotel would violate the intent and spirit of our gift and greatly lessen the intended benefits to UCLA," the letter states.

UC President Mark Yudof read from the letter at the meeting.

“This is what the Luskin family decided would be their contribution, so we should not denigrate the agreement that the Luskins gave to the university,” Yudof said. “I don’t see the money staying with the university if we turn this down.”

Regent George Kieffer said the Luskin center is a bold move worth the financial risk.

“Originally, I had some real concerns about the finances of it,” Kieffer said. “(But) you’re making the financial analysis and you’re comfortable with it. I think it’s a bold and exciting kind of thing.”

The project will return to the regents in September for final approval of the design and environmental documents.